WiMAX deployments likely to result in a stop at Qualcomm tollbooth

Qualcomm has made a nice chunk of money off of its 3G patent portfolio. …

As the ongoing patent tussle between Qualcomm and Nokia demonstrates, Qualcomm has some significant patent holdings when it comes to 3G technology. The end result is that in some countries, every handset maker has had to pay Qualcomm between $5 and $10 per handset. Manufacturers hoping to get a break from cutting checks to Qualcomm with the transition to 4G and Mobile WiMAX are likely to be disappointed.

"Qualcomm is an IP juggernaut," John Koepke of IP consulting firm Red Chalk Group told Ars. "The company has tremendous IP skills."

Crafty moves by Qualcomm during the past few years has given the company ownership of some crucial 4G IP, especially when it comes to Orthogonal Frequency Division Multiple Access technology. OFDMA is one of the key components of 802.16, as it can break signals into subchannels which has the effect of optimizing access for multiple, simultaneous users.

A slick acquisition

Qualcomm was looking to shore up its patent portfolio during the 802.16 Working Group's standards-setting process. A small company called Flarion caught its eye. Spun off by Bell Labs, Flarion didn't look to many like a very attractive target to most people. "They had 12 published patents and little in the way of revenues," recalls Raymond Zenkich, a partner in Red Chalk Group. "But the reality is that Flarion had nailed the technology around OFDMA."

After some due diligence, Qualcomm acquired Flarion for around $600 million in August 2005. With it came some patents covering some very important technologies for mobile applications that will affect not only WiMAX, but mobile television broadcasts as well. "The acquisition put Qualcomm at least in the top three of companies with IP related to 4G," said Koepke.

Sprint goes in a different direction

To say that mobile handset makers and other WiMAX hardware makers are unexcited about writing licensing checks to Qualcomm is a bit of an understatement. As part of its announcement that it had selected WiMAX as its 4G technology of choice, Sprint said that it would be working with Intel, Motorola, and Samsung to get its network up and running, drawing on their technology expertise (and IP portfolios).

Notably absent from that list is Qualcomm. At the time, Sprint said it was because Qualcomm's technology wasn't as cost-effective and didn't use the 2.5GHz spectrum as efficiently as technology from Sprint and its partners. Qualcomm CEO Paul Jacobs warned that his company has parts of the 802.16 standard locked down in its patent portfolio and, as a result, might demand licensing fees from companies offering WiMAX service—Sprint included.

Despite rumblings from Qualcomm, Sprint and its partners are hoping to bypass Qualcomm's technology and bring the Sprint 4G WiMAX network online without using any Qualcomm IP. Publicly, Sprint, et al., are confident they can do it.

Confidence is nice, but getting around Qualcomm's IP may be next to impossible for those who want to play in the WiMAX space. "Don't bet against Qualcomm when it comes to IP," warns Zenkich. "It's their core competency."

After Sprint's decision to bypass Qualcomm was announced, QCOM dropped 4 percent. After all, Sprint controls about 70 percent of the 2.5GHz spectrum in the US that will be used for WiMAX (Clearwire has another 15 percent after closing a deal to buy AT&T's unused spectrum). Both of those companies are partnering with Intel and not Qualcomm. Despite that, twitchy investors were quietly reassured that Qualcomm was indeed in a solid position with regard to the IP.

Sprint's decision to eschew Qualcomm technology means that a courtroom patent battle is all but certain once Sprint's 4G network is up and running, and Qualcomm is certain that its patent portfolio puts it in an excellent position to collect the same kind of royalties with 4G as it has with 3G. It's "second verse, same as the first"—good news for the company and its shareholders... and a bitter pill to swallow for companies hoping to stop writing royalty checks with the transition from 3G to 4G wireless.